Insolvencies increase as uncertainty starts to bite

The number of companies falling into administration across England and Wales rose over 2017, although insolvency activity slowed during the final quarter of the year.

Analysis by KPMG of notices in the London Gazette shows that the number of companies entering administration increased from 1,156 in 2016 to 1,206 in 2017 – an increase of 4.3 per cent. However, the final quarter of 2017 showed the fewest number of administrations (279) of any quarter during the year, and also fewer than the same period in 2016 (293).

Blair Nimmo, global head of restructuring at KPMG, commented: “2017 saw an uptick in the number of corporate insolvencies, including landmark cases such as Monarch Airlines, Jaeger and Jacques Vert.

“There’s no doubt we’re seeing a subtle shift towards more difficult times for businesses across the board. The weak exchange rate, rising inflation and the negative effects of uncertainty on consumer and corporate confidence could certainly combine to prompt the number of insolvencies to climb more sharply in 2018.

“Retailers in particular continue to have a tough time, with a number of companies issuing post-Christmas profit warnings or announcing store closures. Elsewhere, businesses related to food, either in manufacturing or casual dining, continue to bear the brunt of raw material price inflation, falling margins and tightening consumer spending.

“Additionally, the increases to the Minimum and Living Wage, auto-enrolment pensions and apprenticeship levies have also impacted employment costs, at the same time that business rate hikes are eating into the reserves of many companies in this space.”

Blair Nimmo continued: “This means that in addition to our usual insolvency work, we’re currently assisting a number of our clients develop strategies that will improve profitability and prepare their businesses for continued economic and political uncertainty. Whilst interest rates remain low, and sources of finance plentiful, the credit appetite of some lenders is beginning to tighten as they recognise the pressure points in the economy. This means that those businesses which have been struggling and relying on refinancing to see them through the last few months now have potentially fewer options on the table.”